Sebi plans safeguards for overseas investors taking private bank route

The Securities and Exchange Board of India (Sebi) is planning checks and balances on overseas investors taking the ‘private bank route’ to invest in domestic markets.
The move comes after several industry players expressed concerns that the new route allowed by the Sebi could be misused by investors, such as participatory notes (p-notes).
Last week, the Sebi – through a circular titled “Easing of access norms for investment by foreign portfolio investors – allowed clients of private banks to trade in the Indian equities without having to register with the market regulator.
While the Sebi has only given an in-principle nod to the proposal, regulatory sources said a fine print of the framework will be released by Sebi in the next one month.
“I want to assure that the Sebi will put enough safeguards so that the route is not exploited. Only the banks which are ready to forego their client confidentiality agreements will be allowed to use the route,” said a Sebi official.
It is also learnt that the Sebi will keep the investment structure tight — a stark difference from p-notes. Sources said the Sebi will only permit omnibus structures for the route.

In such a structure, a private bank will be allowed to have only a single portfolio and all the investments will be channelled through the same.
“We will not allow segregated portfolio for the framework as it could be misused. Only fund structures will be permitted and there will be a common portfolio,” the official cited above said.
On a positive note, the Sebi is planning to keep the route open for all classes of investors, including institutions and individuals.
Interestingly, there seems to be a stark departure in the Sebi’s view on indirect participation of foreign investors in Indian markets.
“Indirect participation is not a concern for us as long as we have information of the end beneficial owner,” a Sebi official said.
Among other developments, the regulator seems to have taken a final call on issuance of p-notes from international financial services centres (IFSCs), such as the GIFT City in Gujarat. It is learnt that the Sebi is not inclined to allow p-note issuances from the GIFT City.
The proposal has been under the regulator’s consideration for the past one year as some of the big-ticket foreign institutions were keen on having such a framework. It could be very useful especially in the current circumstances where foreign funds have been stripped of p-notes and the Singapore Stock Exchange (SGX) route to invest in the Indian futures market.

Sebi plans safeguards for overseas investors taking private bank route

Sebi eases access norms for investment by foreign portfolio investors

The Securities and Exchange Board of India (Sebi) has opened up the Indian capital markets to clients of global private banks, which can invest in stocks without having to go through registration or compliance requirements.
Until now, foreign banks were allowed to do propriety trades only. However, now they have been allowed to invest in domestic securities on behalf of their clients.
Sebi announced the move last week in a circular titled “Easing of access norms for investment by foreign portfolio investors”.
Experts say the new measure, which resembles the participatory note (p-note) framework, could be a game changer.
Also, this route will provide more flexibility to investors compared to p-notes, as they will be able to take unhedged exposure to Indian derivatives market.
Sebi’s latest move is a departure from the regulator’s efforts in the past few years to encourage direct participation.
All big-ticket p-note issuing entities are owned by banks such as Citi, JPMorgan, BNP Paribas, and Credit Suisse. These banks can now direct their clients to invest through their wealth management arms rather than taking the p-note route.
“Allowing private banks to invest on behalf of their clients has been a long-standing industry demand. In the current scenario p-note subscribers could migrate to this route and trade freely in the Indian derivatives market. The compliance requirement is also expected to be less if an investor comes through a bank,” said Rajesh Gandhi, partner, Deloitte India.
Private banks fall under Category-II foreign portfolio investors (FPIs) and face fewer restrictions and no withholding tax because they are considered “appropriately regulated” entities.
Experts say family trusts and wealthy investors, who come under Category-III FPIs, could invest through banks and avail of beneficial treatment.
Private banks are a major class of institutional investors worldwide because of their wealth management arms, which cater for institutions, family trusts, and individual investors.
Mid- and small-sized investors, whose exposure to the Indian markets is currently minimal, could prefer this route.
“Private banks manage a significant portion of global wealth. Because of the earlier restriction, a lot of investors went to other countries even though they had an appetite for India,” said Suresh Swamy, partner, PwC India.
Citing excessive speculative trading in the derivatives market, Sebi banned p-note subscribers from taking any unhedged positions in the futures market last year.
Following concerns about money laundering through p-notes, expressed by the Supreme Court-appointed special investigation team, it had tightened ‘know your customer’ norms for p-notes in 2016.

P-note issuers were asked to follow Indian anti-money laundering laws.
However, the circular on private banks doesn’t have any such provisions, meaning less compliance burden. There are two broad conditions these banks should meet. One, they should not have secrecy arrangements with the investors. Two, the banks should know who the end beneficiary of the account is, and Sebi has the right to know about it.
Overseas funds have been spooked by several policy measures taken by the government in the past few years.
Experts say moves such as the reintroduction of the long-term capital gains tax and enacting General Anti-Avoidance Rules (Gaar) have affected investor sentiment. They say these decisions have reduced the attractiveness of India as an investment destination.
FPIs would welcome Sebi’s circular, experts said.
• Securities and Exchange Board of India (Sebi) permits foreign investors to invest in Indian markets through private banks
• Investors using this route will not be required to register directly with Sebi
• The framework bears resemblance to the participatory note (p-note) framework
• Also investors coming through private banks will be able to take unhedged positions in derivatives, which p-note users are not allowed to do
• Foreign individuals and family trusts under Category-III foreign portfolio investors can also avail this route to get beneficial treatment
• Experts believe the move will be a game changer in attracting more offshore fund flows

Sebi eases access norms for investment by foreign portfolio investors

Sebi working with FinMin on new framework on algorithm trading

The Securities and Exchange Board of India (Sebi), in consultation with the finance ministry, is expected to reissue fresh guidelines on high-frequency trading (HFT), popularly known as algorithm trading, after taking feedback from market participants.

According to sources, the earlier proposal to tighten the algo trading rules, which had been put out by Sebi in August 2016, has been dropped by the ministry. The market’s contention was that the rules were framed without taking all aspects into consideration, were not in line with global practices, did not have sufficient checks and balances, and would have had an adverse impact on liquidity.

To review the proposed norms, Sebi constituted in August last year a committee on fair market conduct to suggest measures to improve surveillance of the market and strengthen the rules for algo trades.


“We have received several proposals and will soon put out final guidelines in this regard,” said a person privy to the development.

“Sebi’s new proposal would bring standardisation of the co-location (colo) facility. Most of the measures proposed earlier were regressive in nature. The new framework would be progressive in terms of equitable access without impacting liquidity,” said a source.

In 2015, Sebi began investigations after it received multiple complaints that some brokers had allegedly got preferential access to the National Stock Exchange’s (NSE’s) colo facility. According to the source, the consultation paper is being prepared keeping in mind the best global practices and considering cost benefit analysis, which was not effectively done in the previous proposal.

Sebi’s new framework would ensure that liquidity is not impacted. For that, the regulator may put a cap on “order to trade ratio” to give level playing field. This could be done by formalising market maker scheme.

“To improve liquidity, the regulator should formalise the market-making scheme. There should be differentiated treatment and regulation in terms of market participation. The regulator should economically incentivise market makers rather than disincentivising all market participants uniformly,” said Harjeet Singh, consultant, department of economic affairs, ministry of finance.

Under the revised proposal, the regulator is said to be focusing on a real-time surveillance system so that it could get minute-by-minute surveillance of algo trades and, thereby, detect and prevent malfunctioning.

This could be done by improving the existing infrastructure and ramping up the systems by having an advance template of superior technology.

Currently, there is no structured data available at a prescribed time interval to provide real-time feed for surveillance.

Besides, Sebi also wants to have standarisation of colo facility, so that all participants would have fair and equitable access. “Publishing real-time colo-based latencies would help bring in transparency as well as provide benchmarking against global exchanges,” said Singh.

The regulator is not in favour of allowing retail participation in HFT at present. “It is not advisable as it would be highly risky for individual investors to use automated trading systems. The regulator wants to have guidelines in place first and it could perhaps consider domestic individual investors at a later stage,” said one of the sources cited above. Sebi also plans to address and mitigate the chance of flash crash and fat-finger trades.

Algo trading is a software programme designed to execute automated trades on fulfilment of certain criteria. These are typically trading strategies that make use of complex mathematical models. The most common is arbitrage, which tries to profit from differential pricing of the same security at the same time on different exchanges. According to the Sebi data, a little over 80 per cent of the orders placed are generated by algorithms. Such orders contribute to about 40 per cent of the trades on exchanges (not all orders result in trades).

The review of the HFT regulation was triggered by the NSE co-location controversy, where some brokers and officials allegedly made illegal gains through preferential access to the server. After the controversy, Sebi had published a discussion paper and had proposed seven ways to level the playing field between HFT traders and others. These included revising the order sequence, introducing a minimum resting time between HFT orders, and uniform access to market data.

Sebi working with FinMin on new framework on algorithm trading

Sebi launches search operation in WhatsApp earnings leak case

The capital market regulator Securities and Exchange Board of India (Sebi) has launched a massive search operation in connection with WhatsApp earnings leak case.

Confirming the development, a regulatory official told Business Standard that about 34 people have been identified and are being searched. These people are company officials, brokers and entities who allegedly gained out of the earnings information which was made public in advance.
Nearly 100 Sebi officials and policemen had been deployed for the search operation, which is being done in coordination with the Mumbai police. The search operation will continue for two days, said official cited above.

Last month, Sebi had initiated a probe against dozen odd companies including—Dr Reddy’s, Cipla, Axis Bank, HDFC Bank, Tata Steel, Wipro and Bajaj Finance. The other five were Mahindra Holidays and Resorts, Crompton Greaves Consumer Electricals, IT services providers Mindtree and Mastek, and India Glycols, a petrochemicals company.

According to the sources, around five companies, whose price-sensitive information had leaked on social media, are under investigation. However, BS could not ascertain the five companies under the current Sebi search operation lens.

These five companies have been identified after analysing and examining their trade data of the last 12 months. Further, it had matched the leaked earnings with the actual results of the September quarters to detect a possible breach of Prohibition of Insider Trading (PIT) norms.

Sebi launches search operation in WhatsApp earnings leak case

Sebi should prosecute Infy board over Panaya, Bansal issue: Whistleblower

A whistle-blower at Infosys has asked market regulator, the Securities and Exchange Board of India (Sebi), to reject the Bengaluru-headquartered information technology (IT) major’s offer to settle the dispute over former chief financial officer (CFO) Rajiv Bansal’s severance pay. Instead, the whistle-blower has sought an independent forensic investigation of the matter.

The anonymous whistle-blower, whose email to Sebi was reviewed by Business Standard, also blamed the Infosys board, currently led by co-founder Nandan Nilekani, for dismissing the allegations. “It is a mockery of justice,” the whistle-blower, who claims to be an Infosys employee, has written.
“The impunity with which the board — both past and present — dismissed the allegations when they knew they were wrong is unprecedented and just for this reason Sebi should dismiss this settlement overture and prosecute the management and board to set an example,” the letter claims.

The whistle-blower drew parallels to allegations of fraud at the National Stock Exchange, which was investigated by the company-appointed panel and got a clean chit.

Sebi should prosecute Infy board over Panaya, Bansal issue: Whistleblower “The current (NSE) management filed for [a] consent [plea], but Sebi is not accepting that and asking for special investigation. Why Infosys case should be different from the NSE case? Why not Sebi order a fully independent investigation including a forensic investigation and make people accountable?” said the letter.

An Infosys spokesperson said the company has not seen the letter.

In February, the petition by an anonymous whistle-blower to Sebi, alleging irregularities in the acquisition of Israeli technology firm Panaya by Infosys and the subsequent severance pay to Bansal triggered at least two independent investigations. Both gave a clean chit to former chief executive officer Vishal Sikka and the company.

However, Infosys founder N R Narayana Murthy, who had made public his outrage against the failure of Infosys in disclosing the severance pay to shareholders and regulators, wanted the report to be made public.

Infosys declined, saying there were confidential details in the report.

The public pressure from Murthy made Sikka quit the company in August. Following this, the board, led by then chairman R Seshasayee, engaged in a public spat with Murthy. Seshasayee and two other board members also ended up quitting the company.

As investors fled Infosys after a failed three-year experiment with its first non-founder CEO and the subsequent uncertainty, several board members, investors, and former employees reached out to a reluctant Nilekani to return to the company.

One of the commitments made by Nilekani, who returned as non executive chairman, was to look at the probe reports dispassionately and offer his views.

In October, he gave a clean chit to Sikka and declined to make the probe report public, citing confidentiality reasons. On December 2, Infosys named Salil S Parekh, a former Capgemini executive, as the next CEO.

On Wednesday, Infosys approached Sebi with a consent plea to settle allegations of disclosure lapses on Bansal’s severance pay, which analysts and former Infosys employees said was an admission of guilt.

The latest salvo at Infosys comes at a time when two former board members, T V Mohandas Pai and V Balakrishnan, have asked Infosys to apologise to founder Murthy and also sought the exit of board members who took the previous decisions. Balakrishnan told PTI that Ravi Venkatesan and Roopa Kudva should resign.

Sebi should prosecute Infy board over Panaya, Bansal issue: Whistleblower Some board members tried to respond to the building pressure.

“I hope you recall that procedural lapses were admitted when Seshasayee apologised at (the) AGM. Settlement is to pay fine for unintended procedural lapses,” tweeted Kiran Mazumdar-Shaw, an Infosys board member, and chairman and managing director of Biocon.

She was responding to a query on the microblogging platform whether she would resign from the Infosys board. The whistle-blower’s letter to Sebi said future disclosures on any wrongdoing could potentially not be exposed if Infosys is let off the hook now. “This is the first time an internal whistle-blower took pain to unravel a fictitious payment to an ex-CFO and a suspicious acquisition with personal conflicts attributed to senior management. If this case is settled through the backdoor then no whistle-blower in the future will take the pain to expose such things,” the letter said.

Sebi should prosecute Infy board over Panaya, Bansal issue: Whistleblower

Sebi to investigate possible leak of company earnings on WhatsApp chats

The Securities and Exchange Board of India (Sebi) will investigate possible leaks of company earnings in social media chatrooms, its chief Ajay Tyagi said on Friday.

ALSO READ: Predictive messages about Indian cos results circulate in WhatsApp groups


A Reuters investigation documented at least 12 cases of prescient messages about major Indian companies being posted in private WhatsApp groups.

“We will certainly investigate the issue. It is a work in progress,” Tyagi, chairman of Sebi, India’s market regulator, told Reuters, when asked what action the regulator was considering.

Sebi to investigate possible leak of company earnings on WhatsApp chats

MARKETS LIVE: Sensex extends losses for 4th session, Nifty dips below 9,900

The markets extended losses for the fourth straight session on Thursday taking lead from Asian markets, which traded in negative, following lower closing on the Wall Street.

Back home, investors will keep an eye on any development on the Sebi’s decision to restrict trading in 331 shell firms. The market regulator on Wednesday ordered stock exchanges to verify their credentials and fundamentals. In a letter to the exchanges, Sebi hinted if a company’s business model appeared satisfactory, the trading ban could be revoked.

Meanwhile, BHEL, GAIL, Petronet LNG, Bharat Forge, IOB, Adani Power, Union Bank Coffee Day Enterprises, GSPL and Gujarat Gas are among 340 companies scheduled to report their June quarter earnings later today.

MARKETS LIVE: Sensex extends losses for 4th session, Nifty dips below 9,900